U.S. trade gap widens, fueled by Chinese imports

Oct. 13 (Bloomberg) -- Ann Lee, a professor of finance and economics at New York University, David Semmens, an economist at Standard Chartered Bank, and Donald Gimbel, senior managing director at Carret Asset Management LLC, talk about China's currency policy. The yen fell against most of its major counterparts as signs the global economic recovery is gathering momentum and a boost in corporate earnings spurred demand for higher-yielding assets. They talk with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Along with data released in Beijing earlier this week, the latest international trade report from the Bureau of Economic Analysis is likely to intensify criticism of China's economic policies, particularly the country's close management of its currency.

China's central bank reported Wednesday that its holdings of foreign currency had jumped by nearly $200 billion from July to September. Analysts said the torrid rate of accumulation was largely the result of the central bank's efforts to prevent the local renminbi, or yuan, from rising in value, a policy that helps keep the country's exports comparatively cheap.

By selling renminbi and buying dollars and other currencies, the People's Bank of China lowers the price of its currency.

The bank's ability to keep up those purchases is closely tied to the country's large trade surplus with the rest of the world, most notably the United States. The monthly imbalance between the two countries widened in August to a record $28 billion, compared with just less than $26 billion the month before. The gap shows that there's been meager progress in evening out a trade relationship that is both central to the global economy and a potential source of instability.

U.S. imports of Chinese goods jumped to $35.2 billion from $33.2 billion in July, while U.S. exports to China fell to $7.2 billion from $7.3 billion. The overall U.S. trade deficit was $46 billion in August, up from $42 billion in July.

The state of the U.S. economy is a key issue in the upcoming midterm elections, and data released Thursday highlighted two of the main concerns: continued high unemployment, and a sense that trade shortfalls with China and other countries are undercutting U.S. factories and workers.

The most recent figures for weekly jobless claims showed the number rose last week to 462,000, up 13,000. That figure has remained in the same range for several weeks, a sign of weakness in the labor market. In other data, wholesale prices rose slightly, driven by higher costs for food and fuel.

Some analysts cautioned against reading too much into the monthly data. U.S. exports, for example, put in a generally feeble showing in August, increasing by $300 million. But that was largely accounted for by a drop in civilian aircraft sales, a volatile category influenced heavily by the sales and production schedules of a single company, Boeing.

Still, the trends show some of the difficulties the Obama administration faces as it tries to boost jobs through increased exports. U.S. sales abroad are up just more than 6 percent for the year, while imports have grown much more quickly.

Though the dollar has fallen in value against many other currencies, that has yet to boost exports appreciably. Indeed, it has added to concern that major trading nations are heading toward a potentially corrosive "currency war."

"As countries fight each other for export growth, the path out of the recession remains unclear," analysts at Roubini Global Economics wrote in a recent report.

The relationship between China and the United States is in many ways at the center of that tension. On Friday, Treasury Secretary Timothy F. Geithner is due to release the latest semiannual survey of world currencies, a congressionally mandated study meant to highlight countries that "manipulate" their currencies to gain a trade advantage.

While Geithner has been urged by some members of Congress and economic analysts to use the designation as a way to pressure China, he has said publicly he does not regard the currency report as a useful tool. He has, however, stepped up his own criticism of China as part of a broader effort to bring more international pressure against the country's currency management.